CLA perquisite treatment

My brother has joined the company and was getting 40% of Basic as HRA however after some time after transfer to other place he shifted to “company leased accommodation” and his HRA has been withdraw by the company , besides 15% of the gross salary also been added in income as CLA perquisite, The accommodation provided to employee has been taken on lease from some other establishment who too have taken the property on leased from some other trust.

Now the my brother want he is to be paid the difference amount of HRA for Ex- his HRA 20K per month and amount fixed by the company for that accommodation is 10K besides he also wants that the perquisite value of the accommodation should not be included into the income. Secondly if it is not possible , then he should pay full HRA and Perquisite value may be added in his income.

Kindly Advice on the above matter. How can he save the Tax
Asked 1 year ago in Income Tax from Kanpur, Uttar Pradesh
Dear Sir,

It is a bit diificult to interpret your question as you have provided insufficient information and the information provided is again not clear. But still considering what you have said i will try resolving your query. 

1. You have said that your brother wants the difference between the HRA and perquisite of Rent free accomodation. 

I assume his CTC would have reduced by the differential amount, then he will have to re-negotiate the terms with his employer for the same. 

2. Perquisite should not be taxable in his hand - That is again not possible as per Income Tax Act, as rent free accomodation provided by employer is taxable in the hands of employee under the head perquisite. 

3. Should pay full HRA and perquisite value may be added in his income - I assume by this you mean he should get full deduction as per HRA and then add back perquisite. 

This cannot be done unless the terms are negotiated with the employer - you cannot claim both HRA and Perquisite. He should renegotiate with his employer that he wants to leave the company provided accomodation and move into his own rented/owned premises as the case may be and be given HRA benefits if that leaves him with higher surplus income.
Rohit R Sharma
CA, Mumbai
719 Answers
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HRA is a receipt in the hands of an employee and he pays rent out of his HRA received. The rent is one of the factors while determining the exemption u/s 10 (13A) of Income Tax Act. Thus, in the case of your brother, the HRA amount of Rs. 20K will be included in his salary income and thereafter exemption will be allowed as per the rent paid u/s 10(13A).

In the case of company leased accommodation, the company takes a residence on lease and pays rent directly to the landlord. Only the perquisite value will be added to the income of the employee and not the entire lease amount  paid by the employer. 

There will be only marginal difference in tax liability, whether it is HRA or company leased accommodation. In the case of your brother, the difference seems to be significant because of (a) the lease amount paid by the company is more than the HRA amount and (b) probably, your brother is paying rent to his own family members or paying rent less than the rent receipt submitted by him to his employer. 

Your brother may opt for HRA instead of CLA, if he chooses to and normally employer will not have objection to this, unless the accommodation is owned by the company or the company desires to have its work force nearer to its place of operations or any other administrative reason. 

Whether your brother receives HRA or CLA, there is no  significant change in the tax liability. You may get it verified by using actual figures in the computation of his income. He can save taxes by claiming deductions under Chapter VIA as applicable to him. 

B Vijaya Kumar
CA, Hyderabad
290 Answers
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Dear Sir,

With respect to your quarry the taxable value shall be difference of amount recovered from your brother and total rent paid by the company for the property as that is the net benefit transferred by the company to you free of cost as your brother's CTC.

Also note that if you want to reduce or eliminate tax liability than ideal structure would be you pay rent to your landlord directly and company reimburse you the amount of rent as HRA or reimbursement of rent only. in such case the said amount of reimbursement shall not be taxed and for the balance amount you will also get deduction u/s 80GG @ Rs. 2000/- per month.

Thanks & Regards
CA Vishrut Shah
(+91-9824798534)
vishrut1303@gmail.com
Vishrut Rajesh Shah
CA, Ahmedabad
239 Answers
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Dear Sir,

With respect to your quarry kindly note following :

1. The difference amount can be demanded if it is part and parcel of CTC and company agrees to it. As generally company either pay rent or provide HRA both can not be provided together.

2. The option suggested by you can be obtained but if the HRA is paid in some other head than also same is to be in nature of reimbursement only. If it is mere perquisite than same shall be subject to full tax liability.

Thanks & Regards
CA Vishrut Shah
(+91-9824798534)
vishrut1303@gmail.com
Vishrut Rajesh Shah
CA, Ahmedabad
239 Answers
4.9 on 5.0
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Dear Sir,

Technically he cannot because the Company may say that the amount paid to him was to provide him with residential facility. But since now the company itself is taking care of it hence they are not liable to pay him the differential money. But still there is no harm in negotiating for the same.

Even if the company reduces it from one head still it will be taxable in some other head. What you can try doing is salary restructuring which the company can adopt so that its employees pay less taxes. But I doubt No big Company will do it on an individual level for each employee. If it is a small company then you can structure your salary components to reduce Tax implications.
Rohit R Sharma
CA, Mumbai
719 Answers
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Agreed with Mr B Vijaya Kumar
Shiv Kumar Agarwal
CA, Delhi
195 Answers
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